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Posted in Special Focus Income Diversification

Income diversification: how to hunt for new revenue streams

When traditional funding sources dry up, charities need to diversify their income. But how should they go about it? Rick Pearson investigates

   

In a tough economic climate, in which the usual sources of income are no longer guaranteed, charities must seek out new revenue streams. This is easier said than done, of course, particularly in smaller charities where resources are tight. But steps can be taken to improve your chances of accessing vital funding.

The starting point, according to Alex Swallow, chief executive of the Small Charities Coalition, is to look at your charity’s income-generating strengths. “Charities need to established what their USP is”, he says. “Once they’ve done this, it’s a lot easier to think about where new funding might come from.”

So think: are you an organisation that would be attractive to voluntary sources? If so, which ones? Or are you an organisation that could attract some commercial interest? Knowing the answer to these questions will help you to resource the areas of funding that are most likely to bring a return on fundraising investment.

Jay Kennedy, head of policy at the Directory of Social Change (DSC), also stresses the importance of charities knowing their strengths. “There are some causes that are always going to resonate with the public donor, and some that are more niche”, he says. “So not all charities should put their focus on public donations.”

Kennedy also advices against taking a blanket approach to fundraising. “If you’re a small charity, there might be three or fours ways in which you can raise funds. But there certainly won’t be ten. And if you do attempt to find ten income streams, the chances are you’ll fail at all of them. Try a more focused approach.”

   

Be flexible

After investigating what sort of funds are out there, charities might find that a slight change to their offer could result in a big increase in income. “If a lot of funders are saying, ‘Well, we can’t fund that, but we’d love to fund this other thing that’s very similar to your work’, charities should be adaptable enough to consider it”, says Swallow.

Sometimes new income streams could be closer to home than you might think – in the very building that your charity is based. Ask yourself: are you maximising your building’s commercial potential? Are there meeting rooms that you could hire out to third parties, or even an unused basement? In finding new ways to make the most of your physical resources, you can create ‘asset-based enterprises’ that draw in additional income.

It’s not just physical resources that can be capitalised on. You could also look at maximising your intellectual property. An innovative example of this is 15Billion, a youth organisation working in east London. The charity developed a training a course and DVD, made and delivered by young people, aimed at training youth workers in communication and engagement skills.15Billion now sells the product to other youth charities and statutory agencies.

   

To fee or not to fee?

One way in which a lot of charities are accessing funds is by charging people for their services. Kennedy, however, believes it’s something of a moral minefield. “It’s a difficult question, and it’s up to each charity’s board to decide if it’s the right thing to do”, he says. “At the DSC, we charge charities for our services, but only so that we can keep on providing the things these organisations need. We’re not in it to make any profits.”

Kennedy’s fear is that, as other sources of funding dry up, charities may start feeling as though charging for their services is the only way to survive. “You can understand the logic but, sometimes, it can just be wrong”, he says.

Kennedy gives the example of a local transport charity he’s involved with whose mission is to offer free transport to eldery and disabled people. “The whole point of the organisation is to provide a free service”, he says. “You can already pay for a taxi or hop in a bus that doesn’t take you exactly where you need to go. If the charity starts to charge people, it would completely defeat the purpose of its existence.”

However, Kennedy says that the people at policy-making level in the UK don’t seem to appreciate this dilemma. “They’re only interested in charities becoming ‘more sustainable’, even if this means the most vulnerable people in society suffer as a consequence.” As a result, he believes trustees need to watchful of ‘mission drift’ and keep in mind what their charity was set up for in the first place. Swallow, on the other hand, believes there may be cases where charging for services is appropriate. “I think there’s scope for charities to charge for a service to subsidise something else”, he says, “or even charging some people and not others”.

How this criteria is established is, of course, another challenge in itself. But Swallow has had firsthand experience of how such a model can work. At his previous employer, [insert title], one of the ways in which the charity supported older people was by taking them away on holiday. All its beneficiaries qualified for one free holiday. But if they wanted to go on another one, they had a choice: wait three years and go for free, or go earlier but pay for it. “It was a sustainable model, as those who paid subsidised the first-timers’ holidays”, says Swallow.

   

All for one

Diversifying a charity’s income is not a job for one person – everyone needs to get involved. “I think everyone should see their role as having a fundraising element attached to it”, says Swallow.

He feels this is especially the case in small charities, where the fundraising position has often been lost or conglomerated. “In a huge charity, you don’t necessarily have to think about fundraising if you work on policy, whereas people in smaller charities don’t have that luxury.”

Swallow believes that in some cases people other than the fundraising manager may be better positioned to uncover new revenue streams. “If, for example, your main role is service provision directly to beneficiaries, you’re in a great position to tell them why funding is needed”, he says. “You might also be able to mobilise some of your supporters to directly fundraise for you. Or, at the very least, to suggest places where you might be able to find money.

“If you don’t ask, you don’t get. If you never ask for help, your beneficiaries might well think you’re rolling in money.”

   

Highland gains

A few years ago, Epilepsy Scotland decided to take the leap into social enterprise. Recognising that the organisation was heavily reliant on variable legacy income, the charity was eager to find another reliable, sustainable income stream. “Over a ten-year period, we’d experience a big swing in legacies: some years, we’d received lots; others year we’d receive very little, says Lesslie Young, chief executive of Epilepsy Scotland. “I didn’t want to open a café or shop; I wanted us to create something new and innovative.”

Young had a meeting with a former colleague in which they identified online shopping as a growth market. Payment service provision was recognised as an element of that sector that could deliver ongoing income from on-line sales. The idea was mooted for a payment service provider to online merchants that would deliver 100 per cent of the profits to Epilepsy Scotland.

Young proposed the idea to Epilepsy Scotland’s board of trustees. But convincing them to sign off on a £150,000 investment, with little or no knowledge of the online payments market, was no easy task. “There was a lot of debate about it”, says Young. “The biggest challenge was accepting that although the initiative’s operations had nothing to do epilepsy – the proceeds had everything to do with helping people affected by epilepsy.”

Eventually, the Board was convinced. CharityClear was born as a community interest company in [2010]. Finding funding for the project, however, was a challenging task. “The project was almost too innovative”, she says. “As they struggled to see a direct benefit to our cause, some funders were reluctant to get behind it. Traditional funding routes came up dry. We’d be told: ‘This is a fantastic idea, but we can’t fund you’. It was frustrating at times.”

Timing was another tricky issue: CharityClear was started just before the downturn in the economy. “Like many things when they start, the project required subsidising.

However, after a while, we could no longer justify subsidising it. So it is now running in the same format, with all the profits going to Epilepsy Scotland, but it is run by our commercial partner, who handles all the staffing and day-to-day costs.” However, CharityClear continues to grow and Young remains positive about the experience. “The initiative is still a huge success”, she says. “Perhaps not in the way we first imagined it, but a success nonetheless. I’d definitely do it again.”

Her advice? “You can’t be frightened to give things a try. It’s surely better to try, and not quite have the outcome you anticipated, than not try at all?” 

   

Five effective ways to diversify your funding income

1. Know your audience.

Having a clear idea of your funding audience will allow you to resource the area’s of funding that will yield the greater return.

2. Make it a team effort.

Diversifying your income is not a job for one person – get the whole team involved. This is particularly important at small charities.

3. Work your assets.

Are you sitting on a potentially lucrative asset? Could you hire out meeting rooms in your building or rent it out on the weekend?

4. Focus your efforts.

Don’t try for ten new income streams; concentrate your efforts on a few new avenues of funding.

5. Review your charging models.

Consider charging some people or businesses for your services.

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